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FLORIDA RETAIL RENTS CONTINUE TO RISE AS VACANCIES FALL

By Brannon Boswell

Florida’s phenomenal housing boom appears to be slowing somewhat, with both the number of houses on the market and the amount of time they stay there on the rise. Nevertheless, after five-plus years of growth, the state’s solid retail fundamentals are firmly in place, brokerage firms active in the state say.

In Fort Lauderdale, for example, investment advisory firm Marcus & Millichap predicts that asking rents will grow 4 percent to $18.42 per square foot this year. Last year the price of multitenant retail properties grew 25 percent to $148 per square foot. That has already climbed an additional 8 percent so far this year, while cap rates hover in the 7 percent range, the firm says. Fort Lauderdale retail vacancies are expected to be 4.8 percent this year, down from 5 percent in 2005.

In Jacksonville an ongoing development boom will result in some 4.5 million square feet of new retail space within five years, according to NAI Realvest, a local brokerage firm. Marcus & Millichap expects asking rents here to rise 3.3 percent to $14.85 per square foot by year-end. The average cap rate for unanchored open-air centers is over 8 percent, attracting investors from such places as Miami, where yields have compressed to 6 percent, the firm says. Retail vacancies are expected to hit 7 percent this year, up from 6.2 percent last year.

New retail developments are slowing in Miami as the availability and price of land become prohibitive, some say. Construction and land costs require developers to charge rents about 30 percent higher than current rates to cover building costs, says NAI Miami, a local brokerage. And fewer multitenant retail property transactions are happening now that cap rates are in the 6 percent range. Marcus & Millichap says Miami asking rents will go up about 4 percent to $22.88 per square foot this year, while vacancies will drop slightly to 3.5 percent.

Meanwhile, in West Palm Beach, rents will probably rise 4.5 percent to $26.45 per square foot, Marcus & Millichap says, even as vacancy rates fall to 6 percent by the time the year is up. According to NAI Merin Hunter Codman, local brokers, West Palm Beach had more than 5,000 condominiums under construction or on the drawing board last year as home prices surged by over 30 percent. Aggressive bidding for multitenant centers drove prices up 35 percent to $162 per square foot in 2005, but the firm does not foresee much price growth this year; transactions have been flat. “Sellers should consider the 73 percent run-up in prices over the past five years and also take into account the growing interest in West Palm Beach-Fort Lauderdale by foreign capital,” said Tom Hershey, national director of research at Sperry Van Ness Commercial Real Estate Advisors.

Job creation is moving at twice the national pace in Orlando, where landlords will probably raise rents by some 4 percent to $18.12 per square foot, according to Marcus & Millichap. Retail vacancies, meanwhile, will probably decline to 8.1 percent from last year’s 8.9 percent, thanks to a drop-off in new developments, sources say. “Developers are scheduled to complete 1.4 million square feet of space in Orlando this year, less than one-half the average of the past six years,” Hershey said.

Investors continue to flock to the market thanks to its low cap rates, brokers say. With single-tenant yields hovering between 7.5 percent and 8 percent and multitenant deals in the 8 percent to 8.5 percent range, Marcus & Millichap says, Orlando’s retail cap rates are trending about 100 basis points above the U.S. average.